U.S. Economy: Orders for Durable Goods Unexpectedly Decline By Joe Richter http://www.elitetrader.com/vb/newthread.php?s=&action=newthread&forumid=44 March 28 (Bloomberg) -- U.S. durable-goods orders excluding transportation unexpectedly fell for a second month in February, jeopardizing the Federal Reserve's forecast for a recovery in investment. The 0.1 percent drop followed a 4.0 percent slide a month earlier, the Commerce Department said in Washington today. None of the 35 economists surveyed by Bloomberg News predicted the decline. Orders for all durable goods -- those made to last several years -- rose 2.5 percent, less than analysts anticipated. Companies are reluctant to buy new machinery and equipment until inventories are reduced, suggesting the economy may slow further, economists said. ``This raises a major warning flag for the economy,'' said Douglas Porter, deputy chief economist at BMO Capital Markets in Toronto. ``It casts some serious doubt on what had been a leader for the economy in the last year or two.'' Bonds jumped in the minutes after the report, then pared their gains as traders waited for Fed Chairman Ben S. Bernanke's testimony to Congress later today. Porter's forecast for a gain of 0.4 percent in orders excluding transportation was the lowest among economists surveyed before the report. Orders were estimated to rise 1.8 percent. Overall demand was predicted to be up 3.5 percent from January. Economists at HSBC Securities USA Inc. and Morgan Stanley were among those to cut forecasts for first-quarter economic growth after today's report. `Growing Anxiety' ``This report appears to justify the growing anxiety that declines in capital spending -- along with the on-going slump in the housing sector -- could jeopardize the economic expansion,'' said David Resler, chief economist at Nomura Securities International Inc. in New York. ``The `possibility' of recession by year-end looks somewhat less remote than when Mr. Greenspan first asserted such risk a month ago.'' Orders outside of military equipment rose 2.5 percent last month. Inventories of all durable goods increased 0.2 percent. Orders for non-defense capital goods excluding aircraft, a proxy for future business investment, fell 1.2 percent. Shipments of those items, used in calculating gross domestic product, rose 1.2 percent after falling 3.3 percent. Unfilled orders for such goods decreased 0.2 percent last month. Aircraft orders jumped 88 percent in February after dropping 60 percent a month earlier, today's report showed. Chicago-based Boeing Co. received 57 aircraft orders in February, up from 13 in January, according to its Web site. Machinery Orders Fall Orders for machinery fell 0.4 percent, after dropping 10.9 percent. Metals orders fell 1 percent, the biggest decline since November. Bookings for electrical equipment and appliances fell 5.5 percent, the most since August. Orders for computers and related products rose 4.8 percent after falling 3.4 percent. Motor vehicle and parts bookings rose 1.3 percent in February after falling 9.2 percent in January. Economists often focus on the durable-goods figure excluding transportation because orders for aircraft and automobiles tend to be volatile from month to month. A slide in capital investment, together with corporate efforts to trim bloated inventories, contributed to a reduction in the government's estimate of last quarter's economic growth to a 2.2 percent annual rate from 3.5 percent. Corporate purchases of equipment and software declined at a 3.2 percent annual rate last quarter, the most since the final three months of 2002. Fed's Moskow Recent ``softness'' in capital spending will probably be temporary, Chicago Fed President Michael Moskow said this week. The Fed left interest rates unchanged for a sixth time on March 26, while stepping back from its bias toward higher borrowing costs. Other reports this month showed factory activity may be starting to recover after factories retrenched last quarter. Manufacturing grew by the most in five months in February, based on a March 1 report from the Institute for Supply Management. The report showed companies brought inventories closer into line with sales. Santa Clara, California-based chipmaker National Semiconductor Corp. said distributors are increasing orders after clearing out stockpiles of unsold chips. Bookings from customers and distributors improved toward the end of the quarter ended Feb. 25, said Chief Executive Officer Brian Halla. ``This suggests that the inventory correction may well be behind us,'' Halla said March 8. Growth Forecast The U.S. economy may expand at a 2.4 percent annual rate this quarter and will accelerate to 3 percent by year's end, according to the median estimate of 75 economists surveyed by Bloomberg News from March 1 to March 7. Growth in business spending may be limited as companies in many industries continue to sell from existing stockpiles rather than expand production. Inventories at U.S. businesses rose in January as sales declined by the most in four months, a March 13 Commerce Department report showed. An inventory glut is still ``winding down,'' Ron Slaymaker, vice president for investor relations at Dallas-based Texas Instruments Inc., told analysts this month on a conference call